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What the Latest Consumer Credit Report Tells Us

With the government shut down, reliable data is in short supply. Labor statistics? Retail sales? Business inventories? Trade balance? Health updates? The list of what we don’t know goes on.

We do, however, have data from the Federal Reserve, which has kept operating during the shutdown because it does not depend on Congress for its budget. And this week, it released its monthly report on … consumer credit for August!

Normally, this would not be a standout report. But there isn’t much else to look at and, as it turns out, the report is illuminating, albeit in a how-are-we-ever-going-to-get-out-of-this-mess kind of way.

Consumers increased their borrowing $13.6 billion in August, to $3 trillion in total, a record. That includes credit cards debt, auto loans and student loans, but not mortgages or other loans secured by real estate.
Consumers cut back on their credit card spending for the third month in a row and increased their borrowing for student and auto loans, as they have done in nearly every month since May 2010.

Here’s what that means:

Cutting back on credit card spending may be good for a household that needs to clean up its balance sheet, and it may be essential for a household where breadwinners haven’t received raises in years, or have lost their jobs, or have been re-employed at jobs that pay less than they once made. But less spending is not good for the broader economy, especially if — as is the case now — government is not increasing its spending to help make up for the shortfall in demand.

A look at the widespread effects of the federal shutdown by members of the editorial board.

Student loans have been the biggest driver of new debt since the recession officially ended in 2009. On the plus side, more student debt implies more college education which, in turn, implies better job prospects. Unfortunately, the economy is still not producing enough jobs, by a long shot, even for college educated workers. True, the official unemployment rate for college graduates is always much lower than for the general population. But those headline statistics only track graduates over age 25. Among college graduates under age 25, unemployment remains elevated – averaging 8.2 percent over the past year. And that understates the problem. The jobless rate doesn’t capture those who can only find part time work and those who are working at jobs that don’t require or make use of their college degrees.

Unless the economy creates more and better jobs, paying back student loans will be a big burden that in many cases will slow the economy be delaying other life events and purchases — say, marriage, buying a house, starting a family. In some cases, student borrowers will default, putting a black mark on their financial future.

As for auto loans, car buying is essential to economic recovery. But car sales have been generally flat for most of the year. To the extent there was a pickup in the first half of the year, it came from light-truck sales, which reflected an upturn in housing construction and which have cooled as well in recent months. The overall picture is one in which consumers either don’t have the means or the inclination to borrow and spend at levels that could truly boost the economy.

The House Republicans’ government shutdown and debt ceiling threats are the wrong response to all of that. The dysfunction threatens to constrain federal spending going forward, when more, not less, government spending is needed. It has furloughed hundreds of thousands of workers and delayed their paychecks, curtailing activity in an economy that is still operating below par. It is bad for confidence and momentum, dissuading those who may have been ready to buy or invest. It detracts from real problems, putting off the day when the nation gets serious about job creation, debt relief and broad prosperity.

There hasn’t been much data in the past week, but what there has been makes House Republicans look foolish.